DALLAS - Moody's Investors Service has downgraded Topeka Public Schools to Aa3 from Aa2 as the district prepares to issue the first $118 million of bonds its voters approved April 8.
The bonds are scheduled for competitive sale on June 19. Proceeds will finance improvements to district schools and refund some outstanding debt for savings.
The bonds up for bid include $110 million of tax-exempt general obligation bonds, Series 2014-A and $8.2 million of taxable GO refunding bonds Series 2014-B.
Piper Jaffray is financial advisor.
The June 4 Moody's downgrade lowers a rating that the school district - known officially as Shawnee County Unified School District No. 501 -- has only held since 2010 when Moody's recalibrated its ratings. The district's last general obligation bond issue in 2007 was also rated Aa3.
Fitch Ratings rated the bonds AA with a stable outlook June 2.
Moody's analysts Chandra Ghosal?and Soo Yun Chun cited the sluggish economy and weak growth in the state capital. Government employment has declined in recent years from highs of approximately 8,400 to about 6,000 amid Gov. Sam Brownback's austerity measures and income tax cuts.
By the end of June 2014 the state is expecting to relocate approximately 160 employees in its Department of Agriculture to Manhattan, Kan., further reducing government employment in Topeka, the analysts noted.
The district's resident income levels are below average; while unemployment is relatively low, the labor force in the county has declined from 95,000 in 2010 to 92,500 in 2014. The decline in unemployment levels since the recession can be attributable to a declining labor force rather than increased employment, according to Moody's.
"The district's large tax base will likely see muted job growth and flat valuation trends as public sector payrolls remain well below historical levels and may continue to decline," the analysts wrote.
The school district is dependent on state aid, which comprised roughly 66% of operating revenues in 2013, according to Moody's. State aid has declined from $4,280 per pupil in 2010 to $3,838 in 2014. The current state budget has per pupil state aid increasing modestly to $3,852 in fiscal 2015.
About 65% of voters approved the $143 million bond issue April 8 to pay for tornado shelters, a career learning center, a new elementary school, more preschool and other projects.
The finance plan includes closing three smaller elementary schools and splitting another into two locations, one for high-schoolers and one for middle-schoolers.
"These renovations are expected to satisfy the district's capital needs for the next decade and beyond which, coupled with minimal and capped other post-employment benefits obligations (OPEB), will keep district carrying costs low if the state continues to make all employer pension contributions on behalf of the district," Fitch analysts Bernhard Fischer and Stephen Friday wrote.
With the upcoming deal, the school district's outstanding debt will rise to about $126 million, a debt burden that Fitch considers "moderate," given the district's weakening tax base.
"The district's tax base was modestly positive for 2013 but remains down 6.7% from the peak in 2006," Fischer and Friday wrote. "Fitch does not expect significant tax base growth."
